Mergers and Acquisitions
Reasons Why Many Mergers and Acquisitions Fail
Despite the high hopes for mergers and acquisitions, most M&A deals fail to deliver on their promise. Here are some of the biggest reasons that mergers and acquisitions fail, and what you can learn from their failures.
Mergers and acquisitions are never slam dunks.
The fact that two companies have been consolidated on paper does not automatically translate into a successful business enterprise. Without much effort at all, it's possible to take two moderately profitable companies and combine them into a single company that's one heartbeat away from bankruptcy.
There are a multitude of reasons why so many mergers and acquisitions fail. The unfortunate thing is that most of them are preventable. Whether you're a small business or a corporate titan, here's our list of the issues you will want to avoid when you engage in M&A activities.
- Wrong motivations. Companies pursue mergers and acquisitions based on a variety of motivations, some of which boil down to the personal vanity of the people at the top of the leadership pyramid. Mergers and acquisitions garner a lot of attention and create a huge ego boost for leaders. However, if your motivation is anything other than business growth and increased marketplace opportunities, you really have no business even thinking about a merger or acquisition.
- Unmanageable size. Sometimes the merger of two companies results in a significant larger company that is unmanageable by the current leadership team. This is especially true when two rapidly growing small businesses merge and become a much larger entity. Unless there are leadership assets in place who know how to run a larger business, the survival of the new business may be in jeopardy.
- Lack of strategy. In order to be successful mergers and acquisitions require planning and strategy. Haphazardly combining the missions, assets, workforce, and customers of two previously unrelated businesses is irrational and dangerous in today's competitive economy.
- Wrong focus. For whatever reason, many consolidated companies have a post-merger focus on cost reductions. Cost-cutting is fine since greater efficiency is supposed to be one of the benefits of consolidation. But in the months immediately following the merger, the focus should be on sales and income generation. If not, the haze of the merger may result in the loss of customers to competitors.
- Bad match. Some mergers and acquisitions are doomed from the very beginning. No matter how good the consolidation looks on paper, corporate cultures and other factors may preclude the possibility of a successful consolidation experience. Take your time and make sure a business consolidation is the right move before you make any rash decisions.
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